Massachusetts Excise Tax on a Leased Car
Navigate the Massachusetts excise tax on a leased car. Understand how the state values your vehicle and the procedure for payment through your leasing company.
The Massachusetts motor vehicle excise is an annual tax for the privilege of registering a vehicle within the Commonwealth. This tax applies to all registered vehicles, whether purchased or leased. The funds collected from this excise support the city or town where the vehicle is principally garaged.
Payment Responsibility for Leased Vehicles
When a vehicle is leased, the legal owner is the leasing company, known as the lessor. Consequently, the municipality where the car is garaged sends the annual motor vehicle excise tax bill directly to the lessor, not the individual driving the car, the lessee.
Despite the bill going to the leasing company, the financial responsibility falls to the lessee. Lease agreements are structured to pass on operational costs, including taxes, to the person using the vehicle. These contracts require the lessee to reimburse the lessor for the excise tax paid on their behalf.
How the Excise Tax is Calculated
The motor vehicle excise tax is calculated using a uniform formula across the state. The tax rate is set at $25 for every $1,000 of the vehicle’s valuation. The vehicle’s taxable value is not based on its actual purchase price or current market value.
The valuation is a percentage of the manufacturer’s suggested retail price (MSRP) in the year the vehicle was made, based on a fixed depreciation schedule:
- In the year of manufacture: 90% of MSRP
- In the second year: 60% of MSRP
- In the third year: 40% of MSRP
- In the fourth year: 25% of MSRP
- In the fifth year and each year after: 10% of MSRP
For instance, a vehicle with an original MSRP of $30,000 would be valued at $18,000 in its second year (60% of $30,000). The tax is calculated by multiplying this valuation by the $25 per $1,000 rate, resulting in an annual excise tax of $450. If a vehicle is registered after the start of the calendar year, the tax is prorated by the number of months it is registered.
The Billing and Payment Cycle
The billing process begins when the city or town issues the annual excise bill to the leasing company. Upon receiving the bill, the leasing company pays the municipality directly to avoid penalties.
After payment, the leasing company seeks reimbursement from the lessee. This charge is passed on as a separate line item on the next monthly lease invoice or as a standalone bill. The lessee should pay this amount promptly to the leasing company, as late payment could result in fees specified in the lease agreement.
Requesting an Excise Tax Abatement
A lessee may be eligible for a reduction, or abatement, of their excise tax under certain circumstances. Common reasons for seeking an abatement include moving out of Massachusetts, terminating the lease early, or if the vehicle was stolen or declared a total loss. An abatement refunds a prorated portion of the annual tax based on the months the vehicle was not registered in the state.
To initiate the process, the lessee must gather specific documentation. This includes the Plate Return Receipt from the Registry of Motor Vehicles (RMV) to prove the license plates were surrendered, or a copy of the new registration if the vehicle was registered in another state. In cases of theft or total loss, a letter from the insurance company is required.
The lessee provides the necessary proof to their leasing company, which then files the Application for Abatement with the local board of assessors. As the legal owner, the leasing company is the entity that formally requests the abatement. It is advisable to pay the excise bill in full while the abatement is pending to avoid interest and penalties.